Latam Group Looks For Further Synergies

By Jens Flottau
Source: Aviation Week & Space Technology
January 20, 2014

Brazilian airline TAM is famous for giving passengers candy as they board. While it is a great brand- and loyalty-building exercise in a very competitive market, it also prolongs the boarding process by an average of 4 min., which adds up during the course of a day when an aircraft is flying eight or more sectors.

So to achieve efficiencies, the carrier stopped handing out candy during boarding—but then Brazilian ex-soccer star Ronaldo tweeted that he missed his candy when boarding a TAM flight. What followed was a good example of the power of social media. Needless to say, the candy is back.

But that is an exception for Latam Airlines, the group created as a result of the merger of TAM and LAN Airlines that is now into its second year. Change is coming rapidly, and it affects all business units, often down to the smallest details.

It is change in the style of the Cueto brothers, Enrique and Ignacio, who were the controlling shareholders of LAN Airlines and are now the dominant figures in the broader group. They are aiming to replicate LAN's success in Brazil, Latin America's biggest market, which the airline was not able to access on its own. It is a challenging market not only because of its size but also because of cultural and language barriers. Brazil and Chile are very different, and people here are now taking lessons in Portuguese; Brazilians find it relatively easy to understand Spanish, a dialect of which is spoken in Chile.

The Cuetos managed to transfer the LAN principles of efficiency and operational execution to other countries in the region, thereby creating a pan-South American network that includes subsidiaries in Peru, Ecuador, Colombia and Argentina. The merger with TAM opened up the last big chunk of the continent.

The new discipline appears to be having the desired effect a year into the merger that created Latin America's biggest airline. After a few weak quarters, the combined entity posted much-improved results in the third quarter of 2013, even though only about one-third of the targeted synergies have been implemented.

Latam managed to turn a $49 million net loss into a $52 million profit in the period. Revenues remained stable at $3.3 billion, but the company reduced total costs by 4%. Most key operating indicators are slowly pointing in the right direction: Revenue passenger miles were up 1.9% on 0.4% more capacity, the load factor improved by 1.2 points—and by 3.6% in the long-struggling Brazilian domestic market.

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